Opinion
Much at stake in US' trade dispute
By Tao Wenzhao (China Daily)
Updated: 2010-04-05 15:54
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It makes no sense, this constant uproar from the United States about China's exchange rate policy.
Is the US really interested in the following: a full-blown trade war that compromises the interest of the two nations (and possibly the world's), a drop in income for the US' middle class and poor, and as Minister of Commerce Chen Deming said recently, retaliatory measures by China?
All of this will happen if the White House brands Beijing as a currency manipulator, which some US lawmakers are calling for. If that indeed does happen, a wide range of Chinese commodities bound to the US will be taxed with a high tariff. The branding by the US would inevitably force China to take countermeasures.
A high tariff by the US, China's largest exporting market, on goods from China would deal a heavy blow to Chinese exports and negatively impact its economic growth. Moreover, this protectionist behavior by the US is a double-edged sword extremely detrimental to the US' own interests.
And US consumers would also fall victim to the possible trade war with China. For many years, US imports of cheap consumer goods from China offered a variety of choices for American people. Given that a majority of the goods on the shelves of US supermarkets are imported from China, Washington's imposition of a high tariff would mean that American people would have to pay higher prices for the same goods or settle for more expensive goods manufactured by the US or exported from other nations.
US ventures headquartered in China would also suffer heavily from a Sino-US trade war. By the end of last year, direct US investment in China was more than $62 billion. Data from the US Chamber of Commerce indicates that about 74 percent of China-based US ventures are profitable; the rest have the potential to make a profit. In 2008 alone, a total of $8 billion in revenue was generated by US ventures in China, with some products sold in China and some sold around the world, including the US. The majority of sports shoes, for example, in the US market is manufactured by US companies based in China. Thus, if there is a dramatic appreciation of the yuan, it will result in increased production costs for these China-based US enterprises and could possibly hurt their profits.
A booming trade with China has created a lot of jobs for the US. If harsher measures are to be adopted to limit imports from the Asian nation, the lives of Americans working in US import businesses with China, including American retailers, transportation and port workers, would be seriously affected. As economic ties between China and the US become increasingly interdependent, it is imaginable that a high "anti-subsidy" tax imposed by the US would inevitably invite a similar action from China on the imports from across the Pacific Ocean. That would strike a deadly blow to the Obama administration's ambitious plan to increase domestic jobs and double US exports within five years.
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Despite its trade surplus with the US, China has long suffered a deficit in trade with East Asian partners, such as Japan, the Republic of Korea and with its Taiwan province. China's trade with Asian partners depends largely on semi-finished products that are imported for processing and assembly within China. The finished products are then sold to other regions, including the US. Thus, any drastic drop in China's exports to the US will result in a decline in Beijing's imports from neighbors.
The main reason that the global financial crisis has not escalated into something similar to the Great Depression of the 1930s is that the major countries of the world have cooperated and resisted efforts of protectionism. In the US' foreign trade volume, China has an 11 percent share. The US accounts for 14 percent of China's foreign trade value. A trade war between the US and China would darken the outlook of global trade and plunge the staggering global economy into a further recession.
China and the US should be responsible for the global economic recovery. After its subprime mortgage crisis quickly spread to the rest of the world, causing catastrophe to the global economy, the US should shy away from an irresponsible trade war with Beijing. Its groundless charges against China's exchange rate will create reckless actions and drastically hurt the global economy.
The author is a researcher with the Institute of American Studies under the Chinese Academy of Social Sciences.
